February 2013


A budget is a document that forecasts the financial results and financial position of a business for one or more future periods. At a minimum, a budget contains an estimated income statement that describes anticipated financial results. A more complex budget also contains an estimated balance sheet, which contains the entity’s anticipated assets, liabilities, and equity positions at various points in time in the future.

A prime use of the budget is to serve as a performance baseline for the measurement of actual results. Budgets may also be linked to bonus plans in order to direct the activities of various company employees. A budget may also be used for both tax planning and treasury planning. Despite these valid uses, there are also a number of problems with budgeting that have given rise to a movement dedicated to the elimination of budgets.

The Advantages of Budgeting
Budgeting has been with us a long time, and is used by nearly every large company. They would not do so if there were not some perceived advantages to budgeting. These advantages include:

  • Planning orientation. The process of creating a budget takes management away from its short-term, day-to-day management of a business and forces it to think longer-term. This is the chief goal of budgeting, even if management does not succeed in meeting its goals as outlined in the budget – at least it is thinking about the company’s competitive and financial position and how to improve it.
  • Model scenarios. If a company is faced with a number of possible paths down which it can travel, you can create a set of budgets, each based on different scenarios, to estimate the financial results of each strategic direction.
  • Profitability review. It is easy to lose sight of where a company is making most of its money, during the scramble of day-to-day management. A properly structured budget points out which aspects of a business generate cash and which ones use it, which forces management to consider whether it should drop some parts of the business or expand in others. However, this advantage only applies to a budget sufficiently detailed to describe profits at the product, product line, or business unit level.
  • Assumptions review. The budgeting process forces management to think about why the company is in business, as well as its key assumptions about its business environment. A periodic re-evaluation of these issues may result in altered assumptions, which may in turn alter the way in which management decides to operate the business.
  • Performance evaluations. Senior management can tie bonuses or other incentives to how employees perform in comparison to the budget. The accounting department then creates budget versus actual reports to give employees feedback regarding how they are progressing toward their goals. This approach is most common with financial goals, though operational goals (such as reducing the scrap rate) can also be added. We will address a countervailing argument in the Command and Control System section later in this chapter.
  • Predict cash flows. Companies that are growing rapidly, have seasonal sales, or which have irregular sales patterns have a difficult time estimating how much cash they are likely to require in the near term, which results in periodic cash-related crises. A budget is useful for predicting cash flows in the short term, but yields increasingly unreliable results further into the future.
  • Cash allocation. There is only a limited amount of cash available to invest in fixed assets and working capital, and the budgeting process forces management to decide which assets are most worth investing in.
  • Cost reduction analysis. A company that has a strong system in place for continual cost reduction can use a budget to designate cost reduction targets that it wishes to pursue.
  • Shareholder communications. Large investors may want a benchmark against which they can measure the company’s progress. Even if a company chooses not to lend much credence to its own budget, it may still be valuable to construct a conservative budget to share with investors. The same argument holds true for lenders, who may want to see a budget versus actual results comparison from time to time.

These advantages may appear to be persuasive ones, and indeed have been sufficient for most companies to implement budgeting processes. However, there are also serious problems with budgets.

This article is an excerpt from Steven Bragg’s Budgeting: The Comprehensive Guide. To learn about budgeting, visit his course or join us for next week’s blog The Disadvantages of Budgeting.

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As an accountant would you say that you are analytic, organized, and  precise? How about detailed, factual and accurate? Accountants hold a set of certain characteristics (Whether it be from professional training or personality) that could potentially be carried into a Controller position, but only if they can break out of the “number cruncher” mindset… which is not easy to do.

Corporate Controllers

So what is the Controller position? The Controller is more than just a bean counter or a number cruncher; the controller is the analyzer, interpreter and disseminator of financial information to all interested parties. Functioning mostly in planning, accounting, and reporting, controllers are often the budgeting lead, company historian, and number translator for non-number people… all at the same time. The Controller position is a big role in every company— which means that it is a position that can not be perfectly customized to fit your liking.  There will be occasions when accuracy is sacrificed for timeliness, and “big picture” thinking is considered to be more efficient than detail oriented thinking.

The Controller position is more than just supervising the accounting and financial departments. Controllers must also work with and advise company leaders by providing the financial information needed to develop successful strategies,  meaning that the Controller needs to be able to communicate accounting and finance principals to non-accounting professionals. Being responsible for everyone’s transactions and bills requires the controller to not only be well read in other departments, but also be able to build relationships in order to effectively communicate with them.

Qualifications and Capabilities
Before stepping up to such a large and diverse position, make sure that you have the necessary prerequisites required to become a successful controller.

  • Education: Managerial and financial accounting, regulatory compliance, business analysis tools, communication and leadership, and Federal, state and local taxes.
  • Personal: Dynamic/Likable, Analytic/Problem Solver, Supportive/Positive, Credible/Reliable
  • Credibility: Knowledge, Judgement, Objectivity, Candor and Integrity
  • Technical: Accounting, Analysis Tools, Regulatory Laws, Accounting and Financial Systems

DISC Personality Assessment and Leadership Styles
In order to ensure the well being of the company, it is important that the controller has both the educational background and the ability to mediate conversation between different personalities and backgrounds. Success stories come from those who not only know themselves, but know how to read and react to other people and personalities. This intuitive ability allows them to assess situations and act in a way that is best for the group.

The  DISC tool is based off of four personality traits: Dominance, Influence, Submission, and Compliance. In most cultures, 50% of group personalities fall into the Submission category, while the rest were evenly distributed between the other three quadrants. People with Dominant and Influencing traits tend to be extroverted, assertive, and move towards change, while those with a Compliant and Stable personality tend to be more introverted, passive, and gravitate towards stability. On the other axis of the quadrant lies the task-oriented (Dominant and Compliant) and the people-oriented (Influencer and Stabilizer). So which of these quadrants makes a successful controller? The answer lies in your ability as a leader to exercise each of these four traits in the necessary situation. When the situation calls for you to make a decision or take the lead, will you as the Controller have the discernment to decide which quadrant to act upon? In the meantime, take a look at the DISC quadrant to identify your most prominent trait set and recognize your blind spots.

Think you have what it takes to be a Corporate Controller? If you understand the general character of the position and feel that you may be a good fit, join Miles Hutchinson on February 28 as he talks about the specific functions of a Corporate Controller.

As the Busy Season continually picks up speed, it’s easy to feel overwhelmed by sixty hour work weeks. Besides a bottomless pot of coffee, digital video recording, and superb organizational skills, what else does it take to survive the next few months? Here are some helpful tips on how to prepare for tax season:

1. Know What Tools Are Available to You

Did you know that Google is more than just a search engine? The web service offers a huge suite of online productivity tools that can dramatically improve your workflow, and transform how you communicate and collaborate online with colleagues and clients. It’s also an online marketing channel that can be used to promote your accounting practice and even generate revenue from your website or blog. Most of the tools are free (or nearly free), easy to use, huge time and money savers, and literally right under your fingertips.

2. The Six A’s: Activity, Availability, Attention, Accessibility, Accountability, and Attitude

In this competitive economy, it pays to go the extra mile. Whether you’re a firm administrator, manager, staff or accountant, these proven methods will help to reach your maximum potential and achieve breakthrough results.

  • Activity: 20% of your activities produce 80% of your value, so where do you allocate your time and effort? Being able to prioritize and time manage gives you a sense of direction through the day.
  • Availability: Your ability to master your schedule. You can’t be available to everyone all the time, so you need to protect your time to accomplish your desired activities.
  • Attention: The capacity to focus intently and concentrate on tasks. Tax Season doesn’t leave room for distraction, so filter or tune out environmental distractions unrelated to your current task.
  • Accessibility: The ability to organize the inputs and outputs in your life. This key gives you the systems you need to locate data contained in any medium: paper, email, phone calls, contacts, Internet, etc.
  • Accountability: The extent to which you take personal responsibility for your actions and outcomes. Question processes, strive for continuous improvement, and practice self-discipline
  • Attitude: Your motivation, drive, and proactiveness. There is so much to do, and only 24 hours in a day… but that’s ok! With the right attitude and ambition,you can make those 24 hours count and enjoy the benefits of your hard work.

3. Communicate Efficiently
Today’s firm administrators, staff, and accountants spend so much time attending meetings, but few know how to plan and run them. Most meetings frustrate employees because agendas aren’t distributed, objectives aren’t defined, time runs over, and no decisions are made. Whether you are leading or attending a meeting, it is important to know how to communicate efficiently. Plan your topics ahead of time, stay focused during the meeting, and follow up afterwards.

4. Make the Most of Your Email 

It may not seem like the most obvious way to stay productive, but a lot of time is spent in Outlook. It’s more than just email; it’s a calendar, an organizer, file manager, and much more. Take advantage of what Outlook offers, and make sure that you know all of the tips and tricks to use it as efficiently as possible.

5. Become More Fluent in Excel

During the busy season, every shortcut counts. Take the time to learn keyboard shortcuts and hidden menus in order to blaze through your work, and familiarize yourself with the different functions of Excel.

6. Utilize Excel Charts

Tired of wasting time trying to tweak and automate your charts? Look up workarounds for charting features that became deprecated in Excel 2007, or how to replicate things from Excel 2010 in Excel 2007. It will save you time (And a headache) in the end.

7. Learn Visual Basic for Applications in Excel

Visual Basic for Applications is one of the most powerful features in Excel. Use Excel’s Macro Recorder to automate simple tasks such as cleaning up an accounting report file and formatting a list of phone numbers consistently.

To learn more about the tips and tools to staying productive, check out our Productivity Bundle at CPE Link.